Nov. 13 (Bloomberg) -- Japan offers the best investment opportunity in a global market for commercial property that may fall as much as 30 percent, said Sonny Kalsi, managing director and co-head of real estate investing at Morgan Stanley.

``Japan has its issues, but relatively speaking the economy and financial institutions are in better shape,'' Kalsi said in a speech at the Real Estate Investment World conference in Tokyo. ``Japan is the most attractive market.''

The global credit crisis is causing a repricing and restructuring of property markets worldwide, Kalsi said, adding that current market conditions make effective asset management crucial. Financial-services centers like New York and London are going to suffer, and Europe will be the hardest hit, he said.

``We are in a tough time period,'' Kalsi said. ``We are going to see distressed or opportunistic assets we have not seen in 20 years.''

During the first eight months of the year, global sales of commercial property including offices, hotels and shopping malls fell 57 percent to $388 billion, Real Capital Analytics Inc. said in its Global Capital Trends report for September/October. Sales tumbled 77 percent to $106 billion in the U.S., 55 percent to $38 billion in the U.K. and 50 percent to $89 billion in the rest of Western Europe.

Farther to Fall

Commercial property prices globally may fall further as real estate financing comes due, and those declines will create opportunity, Kalsi said.

``We are probably looking at commercial property market repricing of 15 to 25 percent or 30 percent around the world,'' Kalsi said. ``That's not peak-to-valley; it's steady-state to steady-state. That has a lot of implications on highly leveraged deals that we've done.''

Distressed sales of commercial real estate in the U.S. may rise next year as about $36 billion in securitized loans written in 2006 and 2007 come due, Glen Esnard of Grubb & Ellis Co. said on Nov. 12, citing research by JPMorgan Chase & Co.

That figure will grow to $55 billion of commercial mortgage-backed security debt in 2012, triggering delinquencies, defaults and forced sales, said Esnard, president of capital markets for the Santa Ana, California-based real estate services firm.

``There will be opportunities that come out of that,'' Kalsi said today. ``The key is to figure out how to turn those liabilities into assets.

Supply and demand fundamentals for commercial property remain sound in Tokyo, Kalsi said.

Asia accounted for 30 percent of the $96.3 billion of properties under management by Morgan Stanley Real Estate as of June 30, according to the company's Web site. Assets in Europe made up 33 percent, and 37 percent were in the Americas.

In Japan, Morgan Stanley Real Estate Fund's property portfolio includes 13 Japanese hotels acquired from All Nippon Airways Co. and the headquarters of Citigroup Inc. and Shinsei Bank Ltd.

To contact the reporter on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net.

Last Updated: November 13, 2008 03:31 EST